CIT's impact on fashion

Here's a good one from California Apparel News on the impact that a bankruptcy filing by CIT Group could have on the fashion business (much of it involving small manufacturers based in L.A.). CIT is a huge lender, or factor, for the industry - more precisely, it buys receivables from apparel makers at a discount. CIT gets paid when the retailers sell the goods. Without CIT, apparel makers don't have access to the cash they need to supply the next round of goods to retailers. This is terrible timing, given that retailers are preparing for the back-to-school season and holiday shopping season.

Any disruption in CIT's business could have a far-reaching impact on the apparel business. According to some in the industry, CIT was able to leverage its market penetration to offer lower financing terms than more-conservative lenders. The repercussions for the apparel industry are far reaching, from small- and mid-sized manufacturers to specialty stores and independent sales representatives. "Anyone who is factored is going to be affected," said Ilse Metchek, president of the California Fashion Association.

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The only companies well-positioned to weather this crisis are those well-funded companies with good cash flow and large orders with major retailers. "The core companies are doing quite well," Metchek said. "They're going so fast they need money. The top five vendors of any department store are getting all the business."

At last check CIT bondholders were left to decide whether they should pour more money into the firm or take their chances with a bankruptcy filing. Earlier this week, the government turned down a bailout request. From the WSJ:

Punctuating the stress CIT and its bondholders are under, Standard & Poor's cut the company's credit ratings several notches to CC, deep in junk territory, saying the company may run out of time to save itself. "We believe that CIT faces an extremely short timeline to raise additional liquidity," S&P said in a release. "In our view, the compressed timeline makes it very difficult for CIT to pursue other liquidity initiatives successfully, such as secured borrowings, asset sales, or debt restructuring."